Fresenius in buyout talks with Akorn in bid to boost sterile injectables unit

LSNE lyophilization vials
Germany's Fresenius is in talks to buy U.S.-based generic sterile injectable specialist Akorn, which has had its share of financial and manufacturing issues in recent years.

Growth in the generic sterile manufacturing industry has spawned a series of big buyouts in the last few years, and Germany’s Fresenius is looking to M&A to build its expertise with a potential deal for a U.S.-based player. 

Both Fresenius and Lake Forest, Illinois-based Akorn have confirmed they are in discussions, pointing out that there is no guarantee a deal will be finalized.

Shares of Akorn closed up more than 18% at $29.77 on the news Friday and were up again today in premarket trading, pushing its market cap to $3.7 billion. Shares still remain far below the $56 a share at which they traded two years ago before accounting problems tied to its buyout of Hi-Tech Pharmacal and other producers gut-kicked its share price.

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Fresenius’ specialty is injected drugs, and buying Akorn would build on that. Akorn has sterile manufacturing sites in Somerset, New Jersey, Paonta Sahib, India, and Decatur, Illinois. It also has a plant in Amityville, New York, that manufactures OTC and generic products, including difficult-to-manufacture liquid and semisolid dosage forms, inhalation products and sterile ophthalmic and otic products.

Akorn's manufacturing operations have had some issues in recent years that have played out with a series of recalls as well as some regulatory concerns. Last June, one of its sterile facilities in Decatur was hit with a Form 483 with half a dozen observations. The company quickly responded and in its last earnings report in March said the plant has gotten the all-clear from the FDA.

RELATED: Akorn U.S. sterile plant passes FDA reinspection

Fresenius has had its own issues with FDA concerns. A sterile injectables plant in India was slapped with a warning letter in 2013. The year before a plant in New York was also written up in a warning letter. 

Related: FDA upgrades Fresenius sterile plant once cited for insect infestation

There has been ongoing consolidation in the generic sterile manufacturing segment of the industry, where expertise in the tricky-to-produce products draws premiums but also offers buyers significant growth. Pfizer paid $15 billion in 2015 to buy Hospira, the leader in generic sterile injectable drugs. At the other end of the scale, Sweden-based contract player Recipharm closed a $105.2 million deal last year to get it most of Indian sterile injectables CMO Nitin Lifesciences.

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If Fresenius does close a deal with Akorn, it will be the second piece of M&A action for Stephan Sturm since he became Fresenius SE CEO in July, points out Bloomberg, which first reported the talks between Fresenius and Akorn. Last year the company struck a $6.11 billion deal to buy Spanish private hospital group Quironsalud.